Topic 12 - Suitability

Question 1

Record-keeping: interest-only mortgages

Answer 1

The lender must keep records of these mortgages for the term of the contract. It should include:

• Reasons for the decision to offer an interest-only mortgage
• Evidence of the customer’s repayment strategy and cost where applicable
• Details of the firm’s attempts to contact the customer for reviews
• The outcome of each review

Question 2

For interest-only mortgages, the lender must carry out a review…

Answer 2

…at least once during the mortgage term.

Question 3

What issues arise in mortgages that parent risk

Answer 3

Risk to losing home
Negative equity
Repayment risk- interest only
Interest rate risk- how this can affect payments
Fixed rate risk- paying more than you should
Rate rises at the end of term
Investment vehicle underperforming- interest only

Question 4

How many years do lenders consider the affordability of potential interest rate rises

Answer 4

5 years

Question 5

What are calculations of potential interest rate increases

Answer 5

Current SVR and fpc recommendation